In Lessons from Private Equity Any Company Can Use, Orit Gadiesh and Hugh MacArthur (Chairman of Bain, and Head of Bain's private equity practice, respectively) share insights on 'how to make businesses more valuable, regardless of who owns them'.
One of the stories they share is not a PE-owned firm, but one that exemplifies a key lesson: Make it a repeatable formula. They say PE firms are essentially 'learning organisations' that start with a theory, and follow a do-learn-do cycle, getting better with each iteration.
Gadiesh and MacArthur write, “Over time, these PE firms get better and better at what they do, on both a business and on an industry basis. They develop successful formulas that they (1) can repeat within a business and (2) can replicate outside the business.”
They give the example of Nike.
“Nike began as a ‘performance’ basketball shoe company, and has transformed itself over time to a lifestyle company. Underneath that transition was a very concrete, repeatable formula that Nike used to set its blueprint, and that it revisited over time as it went into new sports—from running to volleyball, to tennis, to basketball, to soccer, to golf. Nike begins by establishing a leading position in athletic shoes in the target market. Next, it launches a clothing line endorsed by the sport’s top athletes—like Tiger Woods, whose $100 million deal in 1996 gave Nike the visibility it needed to get traction in golf apparel and accessories. Expanding into new categories allows the company to forge new distribution channels and lock in suppliers. Then it starts to feed higher-margin equipment into the market: balls, then irons first, in the case of golf clubs, and subsequently drivers. In the final step, Nike moves beyond the U.S. market to global distribution. To organize for continued growth, Nike recently realigned its businesses around key sports categories: men’s training, women’s fitness, running, basketball, soccer, and sports culture.
“Looking for the right adjacencies, and jumping into them with a ‘new but related’ blueprint is a key component of the results-oriented mind-set. ”
Have a great day!
A Third World Axis?
Even as we write this newsletter, there is speculation around what Putin may be thinking about. Will the sanctions begin to bite as Russia gets isolated from the global economic ecosystem? Vivek Kelkar argues in The Cosmopolitan Globalist this is something the Russian president has anticipated and given thought to before mounting the assault on Ukraine. So, sanctions such as moving the country out of the global settlement system SWIFT comes with consequences.
“Why? Russia accounts for 11 percent of the world’s oil, 18 percent of the world’s wheat, 23 percent of global ammonia, 17 percent of global potash, and 10 percent of phosphates, all vital in the manufacturing of fertilizers. It also supplies 14 percent of global urea, the primary fertilizer worldwide. More significantly, Russia supplies 40 percent of Europe’s natural gas. Cutting Russia off from the SWIFT system has the effect of considerably destabilizing world trade.”
Kelkar points out that this isn’t the first time leaders in the West have thought along these lines. Back in 2014, when Putin attempted to destabilise Ukraine and annex Crimea, this was thought about. But the West blinked. Much has changed since then and Putin knows that. The ties with China have grown deeper and “If Russia’s trade with China leaks from SWIFT and its euro-dollar backbone to, perhaps, the renminbi, smaller developing and poor economies will be given incentive to follow suit. Then the domino effect comes into play. The primacy of the dollar and the euro will slowly be lost.”
How 10-minute deliveries work
How do the logistics of 10-minute deliveries work? And just how do the economics stack up for the 1,000 odd ‘Dark Stores’ that have got into the business over the last six months? These are questions Soumayrendra Barik and Pranav Mukul investigate in a narrative published yesterday in The Indian Express.
“Even before a customer taps the check-out button, the process has begun with a pre-designated delivery executive on standby. Once that button is clicked, a ‘picker’ inside the ‘dark store’ receives an alert on a smartphone app. The app guides the picker, who has a bucket in hand, through a maze of shelves. The items selected are scanned, billed and packed by a two-member team.
“All of this takes just two minutes, leaving around eight minutes for the delivery executive to reach the customer’s doorstep. Welcome to the world of q-commerce, the 10-minute shopping experience that has taken the online grocery service segment by storm…
“Compared with large-format online grocers that deploy light commercial vehicles and service a higher number of orders at once in a locality, q-commerce platforms deploy delivery workers on a two-wheeler, thereby limiting the size of order up to a maximum of 50 kg.
“While those working inside the dark store are hired and managed by the franchisee, delivery workers are usually managed by the platform itself either by hiring on its own or through a logistics service provider.”
Theory of relativity
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Team Founding Fuel